Standing out: In
the Global Competitiveness Index, Germany scores higher than the U.S. on
several measures, including the quality of its institutions and infrastruc­ture.
See details on the scoring in the report listed in More to Explore.

·Germany owes its robust economy of recent years in part
to the success of its manufacturing sec­tor, from basic materials to tools on
the factory floor.

·The reason Germany has remained competitive against
cheaper manufacturers in Asia and else­where is that it has made good use of
new technology.

·The Fraunhofer network of technical institutes is an
example of how researchers and manufacturers work closely together in industry.

·The Germans have excelled in old industries such as
automobiles and are building centers of excel­lence in biotechnology and other emerging
areas.

Felix Michl and Philipp Stahl huddle over a gleaming new
three-armed robot in the sprawling laboratory at the Technical University of
Munich (TUM). The robot picks up tiny patches of carbon fiber, each less than a
tenth of a millimeter thick but con­taining 24,000 filaments, and quickly
assembles them into a triangular shape. The trickiest task, the investigators
say, is to write the software that translates a 3-D com­puter model of any
part—in this case a bicycle seat, but it could also be a medical prosthesis or
an automobile component—into instructions for the robot's intricate movements,
including the exact position at which the fibers will have their maximum
strength and durability. When the project is completed, Michl will use it in his
Ph.D. thesis, and Stahl will finish up his undergraduate studies. But the work
will get a se­cond life in German factories, including a 70,0000-square-foot,
state-of-the-art BMW production facility 30 miles down the road near the
medieval town of Lands­hut, where engineers are crafting the next generation of
automobiles.

At the moment, the Landshut engineers are focused on the
BMW i3, which will be the world's first mass-market, all-electric car made from
lightweight components if its 2013 launch comes off as expected. The car's
passenger compartment is being built entirely out of carbon composites, which
researchers and students such as Michl and Stahl are helping to develop in the
Munich labs. The core innovation is a new tech­nology that slashes the production
time of complex parts such as the car's side frame to as little as two minutes,
making these high-tech composites affordable for mass production for the first
time. Three gigantic presses, weighing in at 320 metric tons each, inject resin
into the preformed carbon-fiber parts, giving them stiffness. BMW says it has a
lead in this composite manufacturing technology over competitors such as Toyota
or General Motors. “The knowledge we have
in bringing all these elements together isn't something our competitors can
easily copy,” says BMW project man­ager Andreas Reinhardt.

That may be. The steady pipeline of innovation that runs
from university and gov­ernment research labs to manufacturers such as BMW is
one of the secrets driving the booming German economy. Long belittled as lowly
metal bending, German man­ufacturing sailed through the financial crisis with
hardly a dent in profits and em­ployment, even though its workers, among the
world's most highly paid, make 10 times what their Chinese counterparts earn.
German exports have held their share of the global market against China and
other emerging countries, even as the U.S. share has plummeted. Rising
industrial employment is one reason Germany, as of May, had a jobless rate of
only 5.6 percent compared with America's 8.2 percent, according to the
Organization for Economic Co-operation and Development. German manufactur­ers
have stayed globally competitive because their products—like the BMW i3—are
chock-full of science and innovation.

One
major factor for Germany's success is that it has managed to tap homegrown sci­entific
research and expertise to move up the technological ladder, concentrating on
innovative products and processes not easily copied or undercut by cheaper
wages. The textile industry is a case in point. Like America, Germany long ago
lost the bulk of its clothing and fabrics manufacturing to cheaper locales such
as China, India and Turkey. Still, German companies kept a commanding share of
the global market for the ever more complex machines that weave, braid and knit
textiles, riding the in­vestment boom in low-wage countries. Meanwhile many of
Germany's former textile makers also went high-tech, shifting their specialty
to industrial textiles for the auto­motive and aerospace sectors. Today the
national textile industry is at the forefront of composites research,
cooperating with universities and government tech centers to develop the
precision machinery that braids the carbon fibers into strands—not un­like wool
or cotton, except on a microscopic scale. Had Germany given up this indus­try,
it would lack the basis for producing those next-generation composites now
being developed at TUM and other labs.

The key for getting this research
out of the lab and into the marketplace is the close partnership between
research at the universities and today's high-tech factory floors. Most German manufacturers have rich budgets for
research, which they often buy from others. Unlike many American firms that
might fund a professorship or make a general donation to a university
department, German companies
usually approach universities with very specific problems they want solved. At TUM, for example, the composites department is
funded by SGL Carbon, a German maker of carbon fibers that wants to know what
kinds of materials are best suited for the next generation of manufacturing
processes. BMW has about a
dozen of the department's Ph.D. stu­dents on its payroll; their dissertation projects are part of preproduction
research for the i3. Equipment makers such as KUKA (robots) and Manz
(composites presses) are deeply integrated into the university's research as
well.

Multiply this intense networking by dozens of
universities specializing in technology and engineering. At RWTH Aachen
University, more than 20
university institutes fo­cus on state-of-the-art production techniques, cooperating with machinery makers,
robot companies and software developers to make manufacturing processes so effi­cient
that a high-wage country such as Germany can compete with the likes of China. RWTH Aachen is now building a $2.5-billion industrial
park for companies partner­ing in this research. The Karlsruhe Institute of
Technology specializes in nanotechnology and materials science, working with Germany's leading
chemicals com­panies, such as BASF, to
design new substances that will allow batteries to store renewable energy more
efficiently and cheaply. At the Technical University of Dres­den, researchers
partnering with chipmakers and infotech companies are developing integrated
circuits that use one hundredth the energy of current-generation electron­ics.

The German government, too, plays a crucial role. Whereas
the country funds excel­lent labs for basic science, such as the Max Planck
network of 80 institutes covering disciplines as disparate as particle physics
and evolutionary biology, Germany's most economically successful research institution
is the Fraunhofer Society. Its network of 60 technology centers is cofinanced by the
government and businesses and
thus is strictly market-driven. Fraunhofer's $2.5-billion annual budget is also flush
with pa­tent income, most notably from its invention of the MP3 data format in
the 1980s.

A unique trust

Closely partnering with nearby universities, each
Fraunhofer center acts as a trans­mission belt to an entire cluster of
companies networked with the center—and with one another—through collaborative
research designed to find its way into processes and products. There are centers for every
conceivable industrial sector, including pol­ymer research for chemical
companies, precision optics for the makers of
sensors and lasers, and nanoelectronics to produce next-generation IT
components.

Several centers, such as the Fraunhofer Institute for
Production Technology in Aa­chen, focus on developing cost-efficient
manufacturing techniques to keep Germany competitive with China. And for
composites research, there is a Fraunhofer project group in Augsburg near
Munich that grew out of a cold war–era rocket propulsion lab. Partnering with
TUM and more than 50 companies, including BMW, Audi and Airbus owner EADS, the
Augsburg center is already working toward the next genera­tion of composite
fibers derived not from petroleum but from lignin, an inexhaustible by-product
of the wood and paper industries.

What also speeds up the transmission of these
technologies is the encouragement of job-hopping of researchers and engineers. The average Fraunhofer scientist, for ex­ample, switches
to an industrial company after five to 10 years, and many of the best corporate
engineers also do stints as professors or Fraunhofer directors. Klaus Drechsler, professor and head of the Institute
for Carbon Composites at TUM, spent part of his career at EADS developing
composites for the Airbus. Now he is in charge of setting up the new Fraunhofer
center for composites in Augsburg. This kind of job-hopping, crucial in
diffusing expertise and technology, is much rarer in the U.S., where a
government researcher usually stays in one place for life.

This intense and
complex collaboration is typical of German innovation. Much of it grew over decades among companies large and
small that are now so used to working together they know instinctively what
information they can share and what is best kept proprietary. “This trust between companies and
institutions that cooperate but also compete is unique—you don't see that in
very many countries,” says Beñat Bil­bao, an economist at the World
Economic Forum in Geneva and co-author of the lat­est “Global Competitiveness
Report,” which every year shows Germany outranking the U.S. in industrial
innovation. Most of these clusters of companies and their sup­pliers grew
organically over decades (in some cases over centuries, such as the former
clockmakers in the Black Forest that are now the world's leading producers of
preci­sion surgical instruments), which makes them not so easy to copy.

Still, the Germans manage to keep creating such networks
in newly emerging indus­tries. One of the latest is the BioEconomy Cluster near
Leipzig, where a network of more than 60 companies and research institutes is
developing ways to produce chemicals and plastics from biomass, replacing
costly and CO2-spewing petroleum not just for energy but for other
products now refined from oil. When Fraunhofer sets up new tech centers, it
identifies companies and institutions that are already strong in their fields
instead of trying to create something from scratch. “Our philosophy is to take something that's already
working and water it
so that it grows,” says Fraunho­fer
Society president Hans-Jörg Bullinger. In setting up the new carbon composites
cluster, for example, Fraunhofer identified existing companies and university
de­partments and provided funding, staff and a facility to encourage
collaborative re­search.

The second lesson, Bullinger says, is to commit to the
long haul. New Fraunhofer centers have their funding secured indefinitely and
are left to themselves, with no evaluation taking place for the first five years
beyond the requirement that they raise double their seed money from private
companies. The companies, too, are invested for the
long term; many of Germany's most innovative and tech-driven manufactur­ers are
family-owned companies that do not worry about quarterly reports. A typical
German tech company looks like Trumpf, an almost invisible, family-owned firm
that has been a world leader in industrial laser technology for over a
generation and now has annual sales of almost $3 billion. Fraunhofer, too,
added 3,000 new researchers in the worst phase of the financial crisis. “Many countries
have tried to copy us,” Bullinger says. “But their efforts fail because they
think short term.”

That may be the fatal flaw in President Barack Obama's
proposal, unveiled in March, for a $1-billion National Network for
Manufacturing Innovation that is explicitly modeled after Germany's Fraunhofer.
If Congress approves it, the network will be a public-private partnership in
cooperation with manufacturing companies to put in place up to 15 manufacturing
technology centers around the country—so far so good. But the funding is only
set up for the first four years. In Bullinger's view, that is much too short
for the best companies and researchers to commit to serious projects. “The
likely result is a scramble for project money instead of something sustainable,”
Bull­inger says. Still, he says, it is a step in the right direction.

The German system has its weak sides, of course. The country's precision culture
can be better at perfecting existing technologies than inspiring radical
innovation. And the nation has had its periods of
“technophobia,” during which politicians and protest movements chase away
promising high-tech industries, such as biotech in the 1980s. But Germany's
drive for industrial innovation has put to rest the old cliché that man­ufacturing
is low tech and has set an example of how to go head-to-head with China. Those
graduate students reinventing manufacturing in a university lab in Munich are a
model to learn from.

This article was originally published with the title Why
Germany Still Makes Things

The German government said last year it wanted to see 1 million electric cars on the road by 2020. But this week it conceded that the goal is probably out of reach. Media commentators argue that battery-powered cars are too expensive and don't have a long enough range to make them attractive to consumers.

Electric car fits neatly into the German government's plan to leave the dirty world of fossil fuels behind it by mid-century. Just over a year ago, Chancellor Angela Merkel set the bold goal of increasing the number of electric cars in the country to 1 million by 2020. But today there are only 4,600 of them driving on German roads, a mere 0.01 percent of all registered cars, despite years of research. So much for a high-voltage success story.

German drivers don't want electric cars, and it's not hard to understand why not. Part of the problem is that most e-cars can't travel further than 100 kilometers (62 miles) before needing a recharge. Prices, too, can run as much as €10,000 ($13,000) higher for an e-car than one with a traditional internal combustion engine.

On Monday, Merkel hosted a meeting with the heads of Germany's major automobile manufacturers, including BMW, VW, Porsche and Daimler, to talk about e-cars. She admitted that, as of today, it "wouldn't be easy" to meet the government's goal and that 600,000 electric cars by 2020 is more likely. The chancellor noted that as the technology advances, those numbers might quickly change for the better.Massive State AidThe country has already pumped €500 million in state aid into the promotion of electromobility as part of its fiscal stimulus measures during the global economic crisis. By 2013, Berlin is expected to provide an additional billion euros in funding for research and development projects. However, the chancellor has refused to offer incentives or tax breaks to consumers to fuel spending on e-cars, saying it won't happen during the current government's term. With fiscal belt-tightening and the euro bailout, there's greater competition today for funding. Meanwhile, Merkel's transportation minister, Peter Ramsauer, and Economics Minister Philipp Rösler have refused to back buyer incentive programs, arguing that road repair and construction should be given a priority. Of the CEOs who came to the Chancellery, Daimler CEO Dieter Zetsche was the only one to turn up in an electric car. Was it symbolic of the lack of enthusiasm German carmakers have for battery-operated vehicles? Zetsche told German public broadcaster ZDF that Berlin should be happy if it succeeds in getting 500,000 to 600,000 e-cars on the road by the end of the decade. Like other auto sector executives, he is also calling for purchasing incentives like those sponsored by the French and American governments. Members of the Green Party in parliament argued Monday that a purchasing subsidy could be made possible by repealing tax breaks for gas guzzlers and company cars. "If we don't create incentives, then the whole thing is going to fail," the party said in a statement. Others are less convinced about the efficacy of consumer incentives, arguing that they will benefit only those who are already thinking of buying an e-car. On Tuesday's editorial pages, some of Germany's leading newspapers address the issue of e-cars. Most agree the pledge to promote clean cars hasn't met expectations. Some point blame at both the government and carmakers. The center-leftSüddeutsche Zeitung writes:"The electric car is a good idea, even if the automobile industry doesn't seem to think so. But these days skepticism is prevailing. Auto industry executives complain that e-cars are too expensive and their development technically complex. Customers don't want to buy them because of their high price and low range. People shouldn't have any false hopes here either - it's going to take a while. Proof of that is the recent announcement by Toyota that it has stopped further development of purely electric vehicles. Things aren't going well when it comes to electric cars, and it's not only due to a lack of enthusiasm in the automobile industry. The force of inertia is strong. Besides, the industry understands more about pistons and four-stroke engines than it does about electrical technology. It also isn't clear today whether they will be able to recoup the billions that are being invested in the car of tomorrow. The risks are massive.""German industry doesn't work together enough on the issue. Be it car companies or the electric companies that are supposed to provide tomorrow's power, they are just working past each other and not together. The idea of international cooperation doesn't even exist. After years of debate there aren't even common technical standards on e-cars in the European industry. … Instead executives repeatedly call for government subsidies and subsidized consumer incentives."The conservativeFrankfurter Allgemeine Zeitung writes:"There will be no government subsidy for purchasing electric cars for the time being. And that's a good thing. The goal of getting 1 million electric cars onto the road by 2020 can be reached without state assistance. The manufacturers have to make battery-powered cars cheaper and extend their driving range, then there will be enough buyers ready to pay out of their own pockets."

The left-wingBerliner Zeitung writes:

"One million electric cars by 2020. The goal set by Chancellor Angela Merkel cannot be reached. The government's E-mobility strategy has failed. The electric cars are far too expensive -- a small car costs at least twice as much as a comparable petrol-driven one. The range of 150 kilometers at most isn't big enough. And there is no infrastructure for charging batteries. That doesn't mean the electric car is dead. On the contrary. The future belongs to battery-powered vehicles." "But new goals are now needed for the auto industry and they must be independent of technology. It makes most sense to impose significantly stricter CO2 emission limits. Scientists have confirmed that the current pan-European rules for emissions have had quite a big impact. Gasoline consumption and consequently CO2 emissions can already be cut by a quarter with technologies that have already been developed. A tougher limit could smooth the path for natural gas as a propellant that has long been neglected by carmakers. And with more ambitious requirements, carmakers would also be forced to redouble their efforts in electric mobility alongside using electricity from renewable sources."- SPIEGEL ONLINE Staff